by Carolina Perez-Timan Harm,
Senior Fellow at Garrigues (Peru), Lawyer from Pontifical Catholic University of Peru, and Master of Laws (LL.M) from New York University.
The International Energy Agency (IEA) estimates that between 2022 and 2027 global renewable energy capacity will increase by 75%. With significant potential for non-renewable energy generation throughout its territory, Peru is joining this global trend The portfolio includes more than 60 projects for non-conventional renewable energy, wind and solar PV plants. As the number of renewable energy projects increases, it is interesting to emphasize a key tool: the power purchase agreement.
And Power Purchase Agreement Or PPA, for its abbreviation in English, is an energy purchase and sale contract through which a generating company sells the energy produced by a particular facility to the buyer (either the consumer itself or the energy marketing company) through the efficient delivery of this energy. Through these contracts, the cost of electricity can be improved, to the point of obtaining it from a specific station at a specific price and volume, as agreed upon in the contract. In addition, along with the sale of energy, energy property certificates are obtained, which guarantee that the energy comes from a renewable source. This contract is commonly referred to as a traditional or physical power purchase agreement.
With the bubble In the world of renewable energy projects, certain forms of PPAs have also emerged: one such variant is the financial or virtual PPA. Through a virtual PPA, the seller (power generation company) sells energy to the buyer, but in this case the delivery of energy is fictitious, i.e. there is no physical delivery of energy. It is also called a financial PPA because it practically works like a derivative contract. First, the generator agrees to sell an amount of electricity to the buyer at a fixed price (the agreed upon price). The electricity is then sold through the market spot. Finally, the generator and buyer liquidate their positions based on the differences between the agreed price and the price spot.
In this way, if the agreed price is lower than the price set by the wholesale electricity market, the buyer will receive from the generator a discount equal to the difference between the agreed price and the price. spot. Conversely, if the agreed price is higher than the price spot, the buyer will pay the difference to the generator. In addition to the financial element of the contract, a virtual PPA has other advantages, such as being a way for the buyer to achieve specific climate goals. In fact, virtual power purchase agreements in Peru are generally signed between two power generation companies, with the buyer (which is in turn a power producer) “allocating” to its customers the “clean” renewable energy produced by the seller’s plant, and in turn obtaining certificates. Characteristics of energy.
Although virtual power purchase agreements are relatively new in Peru (in fact, many have not been signed yet), generating companies and entities financing projects are increasingly interested in this type of contract because of the advantages and flexibility it offers.
Therefore, it is important to fully understand how these contracts work from a technical and legal point of view, in order to include appropriate regulation that allows the risks resulting from the implementation of the contract to be appropriately distributed between the parties, in turn facilitating the bankability of the project.
